a

GAO

United States Government Accountability Office

Report to Congressional Committees

December 2005 TELECOMMUNICATIONS

Strong Support for 

Extending FCC’s 

Auction Authority 

Exists, but Little 

Agreement on Other 

Options to Improve 

Efficient Use of 

Spectrum

GAO-06-236
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

December 2005

TELECOMMUNICATIONS 

Strong Support for Extending FCC's 

Auction Authority Exists, but Little 

Agreement on Other Options to Improve 

Efficient Use of Spectrum 

Highlights of GAO-06-236, a report to 

congressional committees 

The radio-frequency spectrum is a

natural resource used to provide an 

array of wireless communications

services, such as television 

broadcasting, which are critical to

the U.S. economy and national 

security. In 1993, the Congress 

gave the Federal Communications

Commission (FCC) authority to use 

competitive bidding, or auctions, to

assign spectrum licenses to 

commercial users.

The Commercial Spectrum

Enhancement Act required GAO to

examine FCC’s commercial

spectrum licensing process.

Specifically, GAO examined the (1) 

characteristics of the current 

spectrum allocation process for

commercial uses; (2) impact of the 

assignment process—specifically

the adoption of auctions to assign

spectrum licenses—on end-user 

prices, infrastructure deployment, 

competition, and entry and

participation of small businesses; 

and (3) options for improving

spectrum management. 

What GAO Recommends

In 2003, GAO recommended that an 

independent commission examine 

spectrum management. In this 

report, GAO recommends that the 

Congress consider extending FCC’s 

auction authority beyond the 

current expiration date of

September 30, 2007. FCC provided

technical comments on this report

and OMB generally agreed with the 

report. 

The current spectrum allocation process is largely characterized as a 

“command-and-control” process, in which the government largely dictates 

how the spectrum is used. Many stakeholders we spoke with, along with 

panelists on our expert panel, identified a number of weaknesses of the 

existing spectrum allocation process, including that the current process is 

slow and leads to underutilization of the spectrum. FCC staff have identified 

two alternative allocation models: the “exclusive, flexible rights” model—

which would extend the existing process by providing greater flexibility to 

spectrum license holders—and the “open-access” (or “commons”) model—

which would allow an unlimited number of unlicensed users to share 

spectrum. While little consensus exists about fully adopting either 

alternative model, FCC staff, as well as many stakeholders and panelists on 

our expert panel, recommend a balanced approach that would combine 

elements of the current process and the two alternative models.

FCC’s use of auctions to assign spectrum appears to have little to no 

negative impact on end-user prices, infrastructure deployment, and 

competition; evidence on how auctions impact the entry and participation of 

small businesses is less clear. Additionally, FCC’s implementation of 

auctions has mitigated problems associated with comparative hearings and 

lotteries, which FCC previously used to assign licenses. In particular, 

auctions are quicker, less costly, and more transparent. Finally, secondary 

markets provide an additional mechanism for companies to acquire licenses

and gain access to spectrum, and FCC has undertaken actions to facilitate 

secondary-market transactions, such as streamlining the approval process 

for leases. 

Industry stakeholders and panelists on our expert panel offered a number of 

options for improving spectrum management. The most frequently cited 

options include (1) extending FCC’s auction authority, (2) reexamining the 

use and distribution of spectrum—such as between commercial and 

governmental use—to enhance the efficient and effective use of this 

important resource, and (3) ensuring flexibility in commercially licensed 

spectrum bands. Stakeholders and panelists on our expert panel 

overwhelmingly supported extending FCC’s auction authority; however, 

there was little consensus on the other identified options for improvement. 

Images Depicting Common Uses of Spectrum 

www.gao.gov/cgi-bin/getrpt?GAO-06-236.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact JayEtta Z. 

Hecker at (202) 512-2834 or 

heckerj@gao.gov. 
Page i GAO-06-236 Telecommunications

Contents

Letter 1

Results in Brief 3

Background 6

Spectrum Allocation Remains Largely a Command-and-Control 

Process, But Alternatives Exist 12

Auctions Have Little to No Negative Impact on the Wireless 

Industry and Are More Efficient than Previous Assignment 

Mechanisms 17

Industry Stakeholders and Panelists Suggested Several Options to 

Improve Spectrum Management 23

Conclusions 27

Matter for Congressional Consideration 28

Agency Comments 28

Appendix

Appendix I: Scope and Methodology 30

Tables Table 1: List of non-government interviewees 31

Table 2: Panelists on GAO/National Academies expert panel 32

Figures Figure 1: Distribution of Spectrum Between Federal and 

Nonfederal Users 7

Figure 2: Percent of Licenses Auctioned 11

Figure 3: Panelists’ Views on the Allocation of Spectrum between 

Commercial and Government Use 26

Figure 4: Panelists’ Views on the Allocation of Spectrum between 

Licensed and Unlicensed Use 26
Contents

Page ii GAO-06-236 Telecommunications

Abbreviations

CMRS Commercial Mobile Radio Service

CSIS Center for Strategic and International Studies

CTIA Cellular Telecommunications and Internet Association

DARS Digital Audio Radio Service

FCC Federal Communications Commission

GAO Government Accountability Office

GHz Gigahertz

ITU International Telecommunication Union

MHz Megahertz

NTIA National Telecommunications and Information Administration

OMB Office of Management and Budget

PCS Personal Communications Services

SMR Specialized Mobile Radio

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately.
Page 1 GAO-06-236 Telecommunications

United States Government Accountability Office

Washington, D.C. 20548

A

December 20, 2005 Letr

The Honorable Ted Stevens

Chairman

The Honorable Daniel K. Inouye

Co-Chairman

Committee on Commerce, Science, and Transportation

United States Senate

The Honorable Joe Barton

Chairman

The Honorable John D. Dingell

Ranking Minority Member

Committee on Energy and Commerce

House of Representatives

The radio-frequency spectrum is a natural resource used to provide an 

array of wireless communications services that are critical to the U.S. 

economy and national security, such as mobile voice and data services, 

radio and television broadcasting, radar, and satellite-based services. 

Historically, concern about interference among users has been a driving 

force in the management of spectrum. The Federal Communications 

Commission (FCC)—an independent agency that regulates spectrum use 

for nonfederal users, including commercial users—and the National 

Telecommunications and Information Administration (NTIA)—an agency 

within the Department of Commerce that regulates spectrum for federal 

government users—have worked to minimize interference through the 

“allocation” and “assignment” of spectrum. Allocation involves designating 

“bands” of spectrum for specific types of services or classes of users, such 

as designating certain bands for commercial or government use. 

Assignment provides an authorization or license to use a specific portion of 

spectrum to entities, such as wireless companies; this is referred to as 

“licensed spectrum.” In contrast, some bands of spectrum are allocated to 

“unlicensed” use, where an unlimited number of users without licenses 

share the band of spectrum.1

Demand for radio-frequency spectrum has exploded over the past several 

decades as new technologies and services have been—and continue to 

1

Mobile telephones and garage door openers are examples of technologies deployed, 

respectively, in licensed bands of spectrum and in bands that permit unlicensed uses. 
Page 2 GAO-06-236 Telecommunications

be—brought to the market in the private sector and new mission needs 

unfold among government users of spectrum, including wireless 

communications critical for public safety officials responding to natural 

and man-made disasters. As a result, nearly all parties are becoming 

increasingly concerned about the availability of spectrum for future needs, 

because most of the usable spectrum in the United States has already been 

allocated to existing services and users. These concerns are compounded 

by evidence that some of the spectrum is currently underutilized. 

Therefore, to promote a more efficient use of this resource and meet future 

needs, FCC has increasingly adopted more market-oriented approaches to 

spectrum management in recent years, including using a competitive 

bidding process, or auctions, to assign spectrum licenses to commercial 

users. Prior to auctions, FCC used comparative hearings, which were quasijudicial forums, and lotteries as assignment mechanisms. As of November 

30, 2005, FCC has held 59 auctions for over 56,000 licenses to select 

between competing applications for the same license, and generated over 

$14.5 billion for the U.S. Treasury.2

The Commercial Spectrum Enhancement Act required GAO to examine 

FCC’s commercial spectrum licensing process.3

 As discussed with the 

committees of jurisdiction, we examined the (1) characteristics of the 

current spectrum allocation process for commercial uses; (2) impact of the 

assignment process—specifically the adoption of auctions to assign 

spectrum licenses—on end-user prices, infrastructure deployment, 

competition, and entry and participation of small businesses; and (3) 

options for improving spectrum management. To address these issues, we 

reviewed and synthesized relevant economic, legal, and policy-oriented 

literature, such as the Spectrum Policy Task Force report, a document 

produced by FCC staff. In addition, we hosted, in conjunction with the 

National Academies, two balanced and diverse expert panels with 23 

2

The Omnibus Budget Reconciliation Act of 1993, Pub. L. No. 103-66, §6002, 107 Stat. 312, 

387-392 (the 1993 Budget Act), added section 309(j) to the Communications Act of 1934, as 

amended. Section 309(j) authorizes FCC to use competitive bidding to assign licenses for 

certain services.

3

Pub. L. 108-494, 118 Stat. 3986, tit. II (2004). The Act required us to report findings to the 

committees of jurisdiction by September 19, 2005. In September and October 2005, we 

briefed the Senate Commerce Committee staffs and provided copies of the briefing material 

to the House Commerce Committee staffs, respectively. Also, as requested, we issued a 

report in November that summarized and transmitted the briefing materials to the 

committees of jurisdiction. See GAO, Telecommunications: Preliminary Information on 

the Federal Communications Commission’s Spectrum Allocation and Assignment 

Process, GAO-06-212R (Washington, D.C.: Nov. 10, 2005).
Page 3 GAO-06-236 Telecommunications

experts representing academia, government, and industry. The experts 

discussed policy issues related to spectrum allocation and assignment, as 

well as options for improving spectrum management in the future. We also 

conducted semi-structured interviews with representatives of academia, 

government, and industry. Finally, we interviewed officials at FCC and 

analyzed data from FCC’s three primary spectrum license databases: the 

Universal Licensing System, the Consolidated Database System, and the 

International Bureau Filing System. We conducted our work from March 

through August 2005 in accordance with generally accepted government 

auditing standards. (See app. I for additional information on our scope and 

methodology.)

Results in Brief FCC’s current spectrum allocation process is largely characterized as a 

“command-and-control” process—that is, the government largely dictates 

how spectrum is used. In particular, FCC, based on regulatory judgments, 

determines and limits what types of services—such as broadcast, satellite, 

or mobile radio—will be offered in different frequency bands by geographic 

area. In addition, FCC issues service rules to define the terms and 

conditions for spectrum use within given bands. These rules typically 

specify eligibility standards as well as limitations on the services that may 

be offered in different frequency bands and the equipment and power levels 

that may be used. Many stakeholders we spoke to and panelists on our 

expert panel identified a number of weaknesses with the command-andcontrol process. For example, panelists and stakeholders noted that the 

current process is slow and leads to underutilization of the spectrum, 

among other things. In its 2002 Spectrum Policy Task Force Report, FCC 

staff identified two alternative spectrum management models to the 

command-and-control model: the “exclusive, flexible rights” model and the 

“open-access” (or “commons”) model.4

 The exclusive, flexible rights model 

provides licensees with exclusive, flexible use of spectrum, and 

transferable rights within defined geographic areas; in contrast, the openaccess model allows an unlimited number of unlicensed users to share 

frequencies. Both models are more market-oriented than the commandand-control model—that is, supply and demand for spectrum-based 

services play a greater role in determining how spectrum is used, or 

allocated. FCC is currently using elements of each model. For example, in 

recent years, FCC has provided significant operational and technical 

4

The task force report was a product of FCC staff, and not formally adopted by the full 

Commission.
Page 4 GAO-06-236 Telecommunications

flexibility for many commercial radio services, such as Personal 

Communications Services (PCS). However, there is limited consensus 

about fully adopting either alternative model in the future. Many 

stakeholders and members of our expert panel, as well as the Spectrum 

Policy Task Force, support approaches that would combine elements of all 

three models. But, the relative mix of these approaches remains an area of 

little agreement. 

Available evidence indicates that FCC’s use of auctions as an assignment 

mechanism for licensed spectrum has had little to no negative impact on 

end-user prices, infrastructure deployment, and competition; evidence on 

how auctions impact the entry and participation of small businesses is less 

clear. According to economic research and many of the industry 

stakeholders we spoke to, auctions have little to no effect on end-user 

prices because the auction payments represent a sunk cost,5

 which does 

not affect future-oriented decisions, such as pricing decisions. Similar 

arguments were made for the impact of auctions on infrastructure 

deployment. In addition, some industry stakeholders told us that 

companies’ drive for a return-on-investment (i.e., they need to earn a return 

on the auction payment) and competition induces companies to invest and 

innovate. Thus, rather than diverting resources from investment and 

innovation, auctions encourage these actions. Many industry stakeholders 

also told us that auctions generally do not place companies at a competitive 

or financial disadvantage compared to companies that acquired licenses 

through means other than auctions. The evidence is less certain regarding 

the effect of auctions on entry and participation of small businesses. For 

instance, many industry stakeholders we interviewed stated that auctions 

limit participation to large companies with extensive financial resources. 

However, others noted that large companies tended to also dominate the 

comparative hearing process and that auctions at least make the process 

transparent; some stakeholders also commented that the capital-intensive 

nature of the wireless communications industry makes it difficult for small 

businesses to compete, regardless of the assignment mechanism used. In 

addition, FCC’s implementation of auctions mitigates a number of 

problems associated with comparative hearings and lotteries. For example, 

auctions are faster, less costly, and more transparent than these previous 

assignment mechanisms. Finally, in addition to auctions, companies can 

obtain access to the spectrum resource on the secondary market, which 

5

“Sunk costs” are costs that have been incurred and cannot be reversed, such as paying for 

spectrum rights at an auction.
Page 5 GAO-06-236 Telecommunications

involves the sale of licenses or the leasing of spectrum usage rights among 

private entities. FCC has recently taken steps to facilitate secondarymarket transactions, including streamlining the license transfer approval 

process as well as the procedures by which parties may enter into 

spectrum leasing arrangements. 

Industry stakeholders and panelists on our expert panel suggested a 

number of options for improving spectrum management. The most 

frequently cited options include (1) extending FCC’s auction authority, (2) 

reexamining the use and distribution of spectrum, and (3) ensuring clearly 

defined rights and flexibility in commercially licensed spectrum bands. 

Panelists and stakeholders overwhelmingly supported extending FCC’s 

auction authority. For example, 21 of 22 panelists supported extending 

FCC’s auction authority, which is scheduled to expire in 2007.6

 To gain a 

good understanding of how much spectrum is currently being used, a few 

panelists suggested perhaps adopting a “spectrum census” to 

systematically track usage. A number of panelists also suggested that the 

government evaluate the relative allocation of spectrum for government 

and commercial use as well as the allocation of spectrum for licensed and 

unlicensed purposes, although there was little consensus on the relative 

allocations between these uses. Some panelists suggested that government 

better define spectrum users’ rights, which would clarify understanding of 

the rights awarded with a license. Others also thought that government 

should provide licensees with greater flexibility to determine the type of 

technology used and services offered, although this flexibility could lead to 

greater interference and thus greater flexibility would need to be balanced 

with interference protection. There was no consensus on these options for 

improvements among stakeholders and panelists on our expert panel, 

except for extending FCC’s auction authority. 

To achieve greater consensus for reform of the spectrum management 

process, we previously suggested that the Congress consider establishing 

an independent commission that would conduct a comprehensive

6

At the end of each panel session, we asked the panelists to individually answer a short 

series of questions about the topics discussed in order to more systematically capture 

individual panelist views on key dimensions. Twenty-two of the twenty-three panelists 

responded to the questions we posed at the end of each session.
Page 6 GAO-06-236 Telecommunications

examination of spectrum management.7 To date, such a commission has 

not been established. In this report, we recommend that the Congress 

consider extending FCC’s auction authority beyond the current expiration 

date of September 30, 2007. We provided a draft of this report to FCC, 

NTIA, and the Office of Management and Budget. FCC provided technical 

comments that we incorporated where appropriate. NTIA had no 

comments on the draft. The Office of Management and Budget (OMB) 

concurred with our finding that auctions have mitigated problems 

associated with comparative hearings and lotteries and noted that the 

Administration supports the permanent extension of FCC’s auction 

authority. OMB also noted that the Administration has proposed to give 

FCC authority to use economic mechanisms to promote efficient spectrum 

use.

Background The radio-frequency spectrum is the part of the natural spectrum of 

electromagnetic radiation lying between the frequency limits of 9 kilohertz 

and 300 gigahertz.8

 It is the medium that makes possible wireless 

communications and supports a vast array of commercial and 

governmental services. Commercial entities use spectrum to provide a 

variety of wireless services, including mobile voice and data, paging, 

broadcast television and radio, and satellite services. Additionally, some 

companies use spectrum for private tasks, such as communicating with 

remote vehicles. Federal, state, and local agencies also use spectrum to 

fulfill a variety of government missions. For example, state and local police 

departments, fire departments, and other emergency services agencies use 

spectrum to transmit and receive critical voice and data communications, 

and federal agencies use spectrum for varied mission needs such as 

national defense, law enforcement, weather services, and aviation 

communication. 

Spectrum is managed at the international and national levels. The 

International Telecommunication Union (ITU), a specialized agency of the 

7

See GAO, Telecommunications: Comprehensive Review of U.S. Spectrum Management 

with Broad Stakeholder Involvement Is Needed, GAO-03-277 (Washington, D.C.: January 31, 

2003).

8

Radio signals travel through space in the form of waves. These waves vary in length, and 

each wavelength is associated with a particular radio frequency. Radio frequencies are 

grouped into bands and are measured in units of Hertz. The term kilohertz refers to 

thousands of Hertz, megahertz (MHz) to millions of Hertz, and gigahertz to billions of Hertz. 
Page 7 GAO-06-236 Telecommunications

United Nations, coordinates spectrum management decisions among 

nations. Spectrum management decisions generally require international 

coordination, since radio waves can cross national borders. Once spectrum 

management decisions are made at the ITU, regulators within each nation, 

to varying degrees, will follow the ITU decisions. In the United States, 

responsibility for spectrum management is divided between two agencies: 

FCC and NTIA. FCC manages spectrum use for nonfederal users, including 

commercial, private, and state and local government users under authority 

provided in the Communications Act. NTIA manages spectrum for federal 

government users and acts for the President with respect to spectrum 

management issues.9

 FCC and NTIA, with direction from the Congress, 

jointly determine the amount of spectrum allocated to federal and 

nonfederal users, including the amount allocated to shared use. Figure 1 

shows the current allocation of spectrum between federal and nonfederal 

users.

Figure 1: Distribution of Spectrum Between Federal and Nonfederal Users

Note: Not all spectrum frequencies are equivalent. For example, at higher frequencies, more 

bandwidth is required to provide communications services. Additionally, licenses can vary considerably 

in terms of bandwidth, as well as the geographic area and population covered.

9

The Department of State also plays a role in spectrum management by coordinating and 

mediating the U.S. position and leading the nation’s delegation to international conferences 

on spectrum management.

Shared

Nonfederal exclusive

Federal exclusive

13.7%

30.6% 55.6%

Source: NTIA.
Page 8 GAO-06-236 Telecommunications

Historically, concern about interference or crowding among users has been 

a driving force in the management of spectrum.10 FCC and NTIA work to 

minimize interference through two primary spectrum management 

functions—the “allocation” and the “assignment” of radio spectrum. 

Specifically:

• Allocation involves segmenting the radio spectrum into bands of 

frequencies that are designated for use by particular types of radio 

services or classes of users. For example, the frequency bands between 

88 and 108 megahertz (MHz) are allocated to FM radio broadcasting in 

the United States. In addition to allocation, spectrum managers also 

specify service rules, which include the technical and operating 

characteristics of equipment. 

• Assignment, which occurs after spectrum has been allocated for 

particular types of services or classes of users, involves providing a 

license or authorization to use a specific portion of spectrum to users, 

such as commercial entities or government agencies. FCC assigns 

licenses for frequency bands to commercial enterprises, state and local 

governments, and other entities, while NTIA makes frequency 

assignments to federal agencies.11

In some frequency bands, FCC authorizes unlicensed use of spectrum—

that is, users do not need to obtain a license to use the spectrum.12 Rather, 

an unlimited number of unlicensed users can share frequencies on a noninterference basis. Thus, the assignment process does not apply to the use 

of unlicensed devices. However, manufacturers of unlicensed equipment 

must receive authorization from FCC before operating or marketing an 

unlicensed device. 

When FCC assigns a portion of spectrum to a single entity, the license is 

considered exclusive. When two or more entities apply for the same 

10Interference occurs when two or more radio signals interact in a manner that disrupts the 

transmission and reception of messages. 

11Additionally, some licenses are assigned through a frequency coordination process. 

Licenses for geostationary satellite orbit systems are assigned using a first-come, firstserved approach.

12Traditional unlicensed devises are low-powered devices that operate in a limited 

geographic range, such as cordless phones, baby monitors, garage door openers, and 

wireless access to the Internet. 
Page 9 GAO-06-236 Telecommunications

exclusive license, FCC classifies these as mutually exclusive applications—

that is, the grant of a license to one entity would preclude the grant to one 

or more other entities. For mutually exclusive applications, FCC has 

primarily used the following three assignment mechanisms.

• Comparative hearings were quasi-judicial forums in which competing 

applicants argued why they should be awarded a license, and FCC 

awarded licenses based on pre-established comparative criteria. FCC 

principally used comparative hearings from 1934 to 1984. Critics 

asserted that comparative hearings were time consuming and resource 

intensive, lacked transparency, and often led to protracted litigation.

• Lotteries entailed FCC randomly selecting licensees from a pool of 

qualified applicants. Congress authorized FCC to use lotteries to assign 

mutually exclusive licenses in 1981, partially in response to the 

administrative burden associated with comparative hearings. FCC used 

lotteries from 1984 to 1993.13 Critics contended that lottery winners 

were not always the best suited to provide services; thus, several years 

could pass before the licenses were transferred in the secondary market 

to entities capable of deploying a system and effectively using the 

spectrum. 

• Auctions are a market-based mechanism in which FCC assigns a 

license to the entity that submits the highest bid for specific bands of 

spectrum. The Congress provided FCC with authority to use auctions to 

assign mutually exclusive licenses for certain subscriber-based wireless

13The Balanced Budget Act of 1997, Pub. L. No. 105-33, 111 Stat. 260, tit. III, § 3002, 

terminated FCC’s authority to assign licenses by lotteries, except with respect to licenses 

for non-commercial broadcast stations and public broadcast stations. See, 47 U.S.C. § 

309(i)(5) and 47 U.S.C. § 397(6).
Page 10 GAO-06-236 Telecommunications

services in the Omnibus Budget Reconciliation Act of 1993.14 In 

subsequent years, the Congress has modified and extended FCC’s 

auction authority, including exempting some licenses from competitive 

bidding, such as licenses for public safety radio services and 

noncommercial educational broadcast services. Critics of auctions 

have suggested that auctions raise consumer prices for wireless 

services, slow the deployment of wireless systems, and are a barrier for 

small businesses.

As of November 30, 2005, FCC has conducted 59 auctions to select between 

competing applications for the same license, which have generated over 

$14.5 billion for the U.S. Treasury. However, only a very small portion of 

total licenses has been auctioned. In particular, FCC has auctioned 

approximately 56,100 licenses—about 2 percent of total licenses. (See fig. 

2.) The other 98 percent of licenses have been assigned through other 

means.15

14The 1993 Budget Act established four policy objectives for FCC’s use of auctions: (1) the 

development and rapid deployment of new technologies, products, and services; (2) the 

promotion of economic opportunity and competition and the dissemination of licenses 

among a wide variety of applicants, including small businesses; (3) the recovery for the 

public of a portion of the value of the public spectrum resource; and (4) the efficient and 

intensive use of spectrum. Additionally, in 1997, the Congress added a fifth objective to 

ensure that in scheduling auctions FCC allows adequate time for notice and comment, and 

for potential participants to develop business plans, assess market conditions, and evaluate 

the availability of equipment. See 47 U.S.C. § 309(j)(3). In the Commercial Spectrum 

Enhancement Act, Congress added a sixth objective for auctions requiring the recovery of 

110 percent of estimated costs to relocate federal users from frequencies transferred to 

nonfederal use. See 47 U.S.C. § 309(j)(3)(F).

15For spectrum that is not auctioned, the Administration proposed in its fiscal year 2006 

budget to provide FCC authority to use economic mechanisms, such as fees, to promote 

efficient spectrum use. According to OMB, this proposal would provide FCC the authority to 

set user fees on unauctioned spectrum licenses based on public-interest and spectrummanagement principles, and would promote efficient spectrum use by internalizing the 

value of spectrum to license holders.
Page 11 GAO-06-236 Telecommunications

Figure 2: Percent of Licenses Auctioned 

Notes: 

To calculate the percentage of licenses that have been auctioned, we divided the number of auctioned 

licenses by the number of licenses included in FCC’s three spectrum license databases.

Not all spectrum frequencies are equivalent. For example, at higher frequencies, more bandwidth is 

required to provide communications services. 

In recent years, two government-led task forces have examined spectrum 

policy in the U.S. FCC established the Spectrum Policy Task Force, 

comprised of FCC staff, to assist the Commission in identifying and 

evaluating changes in spectrum policy that would increase the public 

benefits derived from the use of spectrum. In November 2002, the task 

force released a report that contained a number of recommendations, 

including promoting more market-based mechanisms to allocate 

spectrum.16 The Commission subsequently implemented several of the task 

force’s recommendations, including developing rules for leasing spectrum. 

The Federal Government Spectrum Task Force,17 comprised of the heads of 

executive branch departments, agencies, and offices, examined spectrum 

16The task force report was a product of FCC staff, and not formally adopted by the full 

Commission.

17The President established the Federal Government Spectrum Task Force through an 

Executive Memorandum in May 2003. See Memorandum on the Spectrum Policy for the 21st 

Century, 39 Weekly Comp. Pres. Doc. 726 (June 9, 2004). 

2%

Auctioned licenses

98% Nonauctioned licenses

Source: GAO analysis of FCC data.
Page 12 GAO-06-236 Telecommunications

policy for government use, including homeland security, public safety, 

scientific research, federal transportation infrastructure, and law 

enforcement. In June 2004, the Department of Commerce released two 

reports based on the task force’s findings, which contained a number of 

recommendations for reforms to federal agencies’ use of spectrum. For 

example, the Department of Commerce recommended adopting incentives 

for more efficient use of spectrum by government agencies. However, as 

we noted in 2003, the bifurcated responsibility between FCC and NTIA for 

spectrum management can hinder reform.18 Specifically, neither FCC nor 

NTIA has ultimate decision making authority over spectrum management 

or the authority to impose fundamental reform. Because of the lack of a 

single decision making point for spectrum reform, we recommended that 

the Congress consider establishing an independent commission that would 

conduct a comprehensive examination of spectrum management. To date, 

such a commission has not been established.

Spectrum Allocation 

Remains Largely a 

Command-and-Control 

Process, But 

Alternatives Exist 

Spectrum allocation remains largely a command-and-control process, 

although FCC is providing greater flexibility in some instances, particularly 

as it licenses newly available spectrum. Many stakeholders with whom we 

spoke and panelists on our expert panel identified a number of weaknesses 

with the command-and-control process. FCC staff identified two 

alternative spectrum management models: the exclusive, flexible rights 

model and the open-access, or commons, model. Under these models, 

users of spectrum, rather than FCC, would exert a greater influence on the 

use of spectrum. Although there is limited consensus about fully adopting 

either alternative model in the future, many stakeholders and members of 

our expert panel, as well as the Spectrum Policy Task Force, support 

balanced approaches that would combine elements of all three models. 

Spectrum Allocation Is 

Largely a Command-andControl Process 

FCC currently employs largely a command-and-control process for 

spectrum allocation.19 That is, FCC applies regulatory judgments to 

determine and limit what types of services—such as broadcast, satellite, or 

mobile radio—will be offered in different frequency bands by geographic 

area. In addition, for most frequency bands FCC allocates, the agency 

18See GAO-03-277. 

19NTIA employs a similar process for federal government spectrum users.
Page 13 GAO-06-236 Telecommunications

issues service rules to define the terms and conditions for spectrum use 

within the given bands. These rules typically specify eligibility standards as 

well as limitations on the services that relevant entities may offer and the 

technologies and power levels they may use. These decisions can constrain 

users’ ability to offer services and equipment of their choosing. 

FCC has provided greater operational and technical flexibility within 

certain frequency bands. For example, FCC’s rules for Commercial Mobile 

Radio Service (CMRS), which include cellular and PCS services, are 

considered less restrictive. Under these rules, wireless telephony operators 

are free to select technologies, services, and business models of their 

choosing. In contrast, spectrum users have relatively little latitude for 

making such choices in frequency bands allocated for broadcast television 

services. 

Despite these efforts, many industry stakeholders and experts with whom 

we spoke cited a number of weaknesses in the command-and-control 

process for spectrum allocation. The most frequently cited weakness by 

our expert panel was the slowness of the allocation process. Because of 

the regulatory nature of the command-and-control process, arriving at 

allocation decisions can be a protracted process. The slow moving 

allocation process delays consumers’ access to new technologies. In 

addition, some panelists noted that the current allocation process leads to 

underutilization of spectrum. For example, a recent study found that during 

a four-day period in New York City, only 13 percent of spectrum between 30 

MHz and 2.9 GHz was occupied at one time or another.20 Another weakness 

cited by a number of stakeholders was that the command-and-control 

process does not systematically allocate spectrum to its highest value uses. 

As a result, highly valued services may not be fully deployed.

20Mark McHenry and Dan McCloskey, New York City Spectrum Occupancy Measurements 

September 2004, Shared Spectrum Company, subcontract with University of Kansas Center 

for Research, Inc. (Vienna, VA: Dec. 2004). 
Page 14 GAO-06-236 Telecommunications

FCC’s Spectrum Policy Task 

Force Identified Two 

Alternatives to the 

Command-and-Control 

Allocation Process but 

Recommends a Balanced 

Approach

The Spectrum Policy Task Force Report, a document produced by FCC 

staff, identified two alternative spectrum management models to the 

command-and-control model: the exclusive, flexible rights model, and the 

open-access model. The exclusive, flexible rights model extends the 

existing license-based allocation process by providing greater flexibility to 

license holders. The open-access model allows an unlimited number of 

unlicensed users to share frequencies, with usage rights governed by 

technical standards. Both models allow flexible use of spectrum, so that 

users of spectrum, rather than FCC, play a larger role in determining how 

spectrum is ultimately used. FCC’s Spectrum Policy Task Force 

recommended a balanced approach to allocation—utilizing aspects of the 

command-and-control; exclusive, flexible rights; and open-access models.

The Exclusive, Flexible Rights 

Model Is a License-Based 

Approach to Spectrum 

Allocation

The exclusive, flexible rights model provides licensees with exclusive, 

flexible use of the spectrum and transferable rights within defined 

geographic areas. This is a licensed-based approach to spectrum 

management that extends the existing allocation process by providing 

greater flexibility regarding the use of spectrum and the ability to transfer 

licenses or to lease spectrum usage rights. Licensees with exclusive 

licenses can exclude others from using the spectrum they have been 

assigned, and with flexible rights they enjoy flexibility to provide the 

services they wish with their licenses, provided they comply with 

applicable FCC rules and policies. To a certain extent, the model treats 

spectrum like real estate, and some have suggested moving far in this 

direction by turning spectrum licenses into full property rights—an option 

that existing legislation currently prohibits.21 FCC’s broadband PCS rules 

closely resemble this model, in that they provide substantial flexibility to 

licensees in terms of technology and use of spectrum. 

Proponents cite several advantages with the exclusive, flexible rights 

model. First, proponents argue that this model would promote the 

economically efficient use of spectrum. For example, advocates typically 

point to CMRS to support this argument, as CMRS licenses are exclusive 

and governed by relatively flexible rules; in addition, the market for CMRS 

services is highly valuable, innovative, and fast-growing. Second, 

proponents suggest that the model provides certainty for licensees. The 

model provides a reliable means of protecting commercial users from 

21Section 301 of the Act provides that the government can authorize the use—but not the 

ownership—of the spectrum. See, 47 U.S.C. § 301. 
Page 15 GAO-06-236 Telecommunications

interference, allowing them to guarantee quality of service on a wide scale. 

Third, proponents argue that greater certainty will encourage investment in 

technology and infrastructure. 

Opponents cite several problems with the exclusive, flexible rights model. 

For example, opponents assert that the model might not promote 

technically efficient, or intensive, use of spectrum. According to some 

critics, exclusivity might reduce licensees’ incentives to invest in 

developing more technically efficient technologies as users have 

guaranteed access to spectrum, thereby deterring innovation. In addition, 

some opponents assert that the model could encourage “hoarding” of 

spectrum, as licensees could benefit from blocking access to spectrum by 

potential competitors. In other words, companies may buy rights to 

spectrum—with no intention of using the spectrum—to prevent a 

competitor from acquiring rights to the same spectrum. 

The Open-Access Model Is a 

Non-Licensed Approach to 

Spectrum Allocation

The open-access model allows a potentially unlimited number of 

unlicensed users to share frequency bands, with usage rights governed by 

technical standards, but with no rights to interference protection. This 

approach does not require licenses, and as such is similar to the current 

FCC Part 15 rules (which govern unlicensed use in the 900 MHz, 2.4 GHz, 

and 5.8 GHz bands)—where cordless phones and Wi-Fi technologies 

operate. As with exclusive, flexible rights, users would have greater 

latitude in determining how they use spectrum. However, in this case, 

markets for end-user equipment, rather than for licenses, would determine 

how different frequency bands are used or allocated. Under this model, 

commercial spectrum-based service providers would not seek to maximize 

their return on spectrum licenses, but rather, on the sale of equipment that, 

once purchased, would allow consumers to enjoy wireless services. 

Proponents of the open-access model cite several advantages with this 

approach to spectrum allocation. For example, proponents assert that the 

open-access model will promote the technically efficient use of spectrum. 

In order to avoid interference, users have an incentive to develop smarter 

equipment that will use the spectrum intelligently. An example of 

technically efficient equipment is agile radio. Agile radios can determine if 

a specific frequency is currently in use, emit in that band if it is not, and 

switch to another band in microseconds if another user begins to emit in
Page 16 GAO-06-236 Telecommunications

that band.22 In fact, supporters of the open-access model believe that open 

access to spectrum will foster the development of technologies that will 

reduce spectrum scarcity, and therefore interference problems, as a new 

type of wireless architecture becomes possible. According to proponents, 

the open-access model for spectrum allocation also limits the ability for 

companies to “hoard” spectrum—that is, since there would be no exclusive 

use of spectrum in this model, companies could no longer block their 

competitors from acquiring spectrum by simply acquiring or holding on to 

spectrum themselves. In addition, since users would no longer need to buy 

spectrum rights, the open-access model reduces barriers to entry into 

spectrum-based markets, according to proponents. 

Opponents cite several problems with the open-access model. One cited 

problem is that an open-access approach could lead to the overuse of 

spectrum. Specifically, opponents believe that the technologies that could 

end spectrum scarcity are years away from realization. Without such 

technologies, an unlimited number of unlicensed users would result in the 

overuse of spectrum and interference. Moreover, opponents argue that the 

uncertainty about interference would inhibit investment. Another cited 

problem is the potential irreversibility of this model—that is, once 

consumers have the equipment, it would be difficult to prevent them from 

accessing the spectrum if the spectrum were needed for some other 

purpose in the future. One only need to imagine the difficulties involved 

with trying to prevent people from using their garage door openers—which 

operate in some bands under Part 15 rules—to understand this potential 

challenge. 

FCC’s Spectrum Policy Task 

Force Advocated a Balanced 

Approach

The Spectrum Policy Task Force report recommended a balanced 

approach to spectrum allocation—utilizing aspects of the command-andcontrol; exclusive, flexible rights; and open-access models. In particular, 

FCC’s task force recommended the following:

• moving away from the command-and-control model, except for limited 

exceptions such as public safety or to conform to treaty requirements;

• using the exclusive, flexible rights model where scarcity of spectrum is a 

concern and transaction costs are low; and 

22For more information on these technologies, see Gerald R. Faulhaber and David Farber, 

“Spectrum Management: Property Rights, Markets, and the Commons” (Washington, D.C.: 

2002). 
Page 17 GAO-06-236 Telecommunications

• using the open-access model where scarcity is a lesser concern and 

transaction costs are relatively high. 

Little Consensus Exists 

about the Future 

Management of Spectrum 

We found little consensus on the future management of spectrum. As noted 

above, there is disagreement about the merits of the exclusive, flexible 

rights and open-access models. However, many industry stakeholders we 

spoke with and panelists on our expert panel support a mixed approach, 

which incorporates spectrum use under an exclusive, flexible rights 

licensed model and an open-access model. For example, those who favor 

open access do not all believe that licensing should suddenly be done away 

with, but that different approaches ought to be tested and compared before 

any policy decision is made. Similarly, a number of industry stakeholders 

we spoke with who favor providing spectrum users with flexible rights in 

licensed bands also believe that unlicensed spectrum is, at the minimum, 

appropriate for use by certain devices within certain bands. 

Auctions Have Little to 

No Negative Impact on 

the Wireless Industry 

and Are More Efficient 

than Previous 

Assignment 

Mechanisms 

Auctions have little to no negative effect on end-user prices, infrastructure 

deployment, or competition, although the effect on entry and participation 

of small businesses is less certain. FCC’s implementation of auctions has 

also mitigated problems arising with comparative hearings and lotteries. In 

addition to auctions, secondary markets provide another means for entities 

to acquire licenses or lease spectrum in order to gain access to spectrum. 

Auctions Have No Negative 

Impact on the Wireless 

Industry

Some critics of spectrum auctions have suggested that auctions negatively 

impact the wireless industry. Since auctions require licensees to pay for 

licenses, and in some instances the payments can represent a significant 

outlay, these critics believe that auctions (1) raise consumer prices as 

entities seek to recoup their auction payments, (2) slow infrastructure 

deployment by diverting financial resources to the government, (3) distort 

competition by creating an environment where some entities that acquired 

licenses via auction compete with other entities that previously acquired 

licenses via other means, and (4) deter entry and hinder small business 

participation in the wireless industry by necessitating large payments prior 

to the issuance of licenses.
Page 18 GAO-06-236 Telecommunications

We found that FCC’s implementation of auctions has no negative impact on 

end-user prices, infrastructure deployment, and competition; the evidence 

on the impact on entry and participation of small businesses is less clear. In 

particular:

• End-user prices. We found that auctions have little to no impact on 

end-user prices. Economic research suggests that auction payments do 

not affect end-user prices, since these payments represent a sunk cost, 

which do not affect future-oriented decisions. For example, using data 

on cellular prices from 1985 to 1998, one author empirically found that 

auctions had no effect on prices.23 Additionally, industry stakeholders 

we spoke to and panelists on our expert panel noted that competition 

ultimately affects end-user prices. Thus, regardless of a company’s 

desire to recoup its auction payment, the company will select prices that 

maximize future profits based on competition in the market. Among the 

panelists on our expert panel, a majority said that auctions do not affect 

end-user prices. Specifically, 10 panelists said that auctions do not affect 

end-user prices, 3 said that auctions decrease prices, and 5 said that 

auctions increase prices.24

• Infrastructure Deployment. We found that auctions have little to no 

impact on infrastructure deployment. Similar to the argument for enduser prices, economic research suggests that auction payments do not 

deter infrastructure deployment; companies will make decisions about 

infrastructure deployment based on the future profit potential of those 

investments. Some industry stakeholders with whom we spoke, and 

panelists on our expert panel, mentioned that auction payments may in 

fact stimulate infrastructure deployment. In particular, since an auction 

payment represents an investment, the company will seek a return on 

that investment. To earn that return, a wireless company will sell 

subscriber services, which are made possible through the deployment of 

wireless networks. Among panelists on our expert panel, eight said that 

23See Evan Kwerel, “Spectrum Auctions Do Not Raise the Price of Wireless Services: Theory 

and Evidence,” (Washington, D.C.: 2000), http://wireless.fcc.gov/auctions/

default.htm?job=papers_studies (downloaded Dec. 14, 2005).

24At the end of each panel session, we asked the panelists to individually answer a short 

series of questions about the topics discussed in order to more systematically capture 

individual panelist views on key dimensions. Twenty-two of the twenty-three panelists 

responded to the questions we posed at the end of each session. The number of panelists 

responding to particular questions ranged from 17 to 22.
Page 19 GAO-06-236 Telecommunications

auctions increase investment, five said that auctions had no effect on 

investment, and seven said that auctions decrease investment.

• Competition. We found little evidence that auctions affect the 

competitive environment. Many stakeholders told us that auctions 

generally do not place companies at a competitive or financial 

disadvantage compared to companies that acquired licenses through 

other, non-auctioned, means that might not have involved payment for 

the licenses, such as lotteries. These stakeholders noted that (1) 

companies acquired non-auctioned licenses many years ago, (2) many 

non-auctioned licenses have subsequently been sold and paid for, and 

(3) companies that acquired non-auctioned licenses have subsequently 

acquired additional licenses via auction. Therefore, any competitive 

advantage these companies gained by obtaining licenses through means 

other than auctions has dissipated. Among our panelists, 11 said that 

auctions increase the degree of competition, while 3 said that auctions 

had no effect on competition, and 4 said that auctions decrease 

competition.

• Entry and participation of small businesses. Some industry 

stakeholders we interviewed stated that auctions limit participation to 

large companies with extensive financial resources.25 These 

stakeholders assert that small companies are unable to acquire the 

financial resources necessary to successfully compete in FCC’s auction 

process. However, others noted that large companies also tended to 

dominate the comparative hearing process. In addition, some 

stakeholders noted that the capital intensive nature of the wireless 

industry—not the assignment mechanism—makes it difficult for small 

businesses to participate. Expert opinion diverged on this issue: among 

our expert panelists, eight said that auctions increase entry while 

another eight said that auctions decrease entry, and three panelists said 

that auctions had no effect on entry.

25In authorizing FCC to use competitive bidding, the Congress mandated that FCC “ensure 

that small businesses, rural telephone companies, and businesses owned by members of 

minority groups and women are given the opportunity to participate in the provision of 

spectrum-based services.” See 47 U.S.C. § 309(j)(4)(D). In addition, the Communications Act 

requires that in establishing eligibility criteria and bidding methodologies, FCC disseminate 

licenses among a wide variety of applicants. See 47 U.S.C. 309(j)(3)(B).
Page 20 GAO-06-236 Telecommunications

Auctions Mitigate Many 

Problems Associated with 

Previous Assignment 

Mechanisms

As mentioned earlier, comparative hearings and lotteries—the two primary 

assignment mechanisms employed until 1993—suffered from several 

problems. Comparative hearings were generally time consuming and 

resource intensive, as entities employed engineers and lawyers to prepare 

applications and FCC dedicated staff to evaluating applications based on 

pre-established comparative criteria. Further, decisions arising from 

comparative hearings lacked transparency and often led to protracted 

litigation. While lotteries were less time consuming and resource intensive, 

they did not necessarily assign licenses to the entities that were best suited 

to provide services. Thus, several years could pass before the licenses were 

transferred in the secondary market to entities capable of deploying a 

wireless system and effectively using the spectrum. Further, neither 

comparative hearings nor lotteries provided a mechanism for the public to 

financially benefit from commercial entities using a valuable national 

resource.26

FCC’s implementation of auctions mitigates a number of problems 

associated with comparative hearings and lotteries. For example:

• Auctions are a relatively quick assignment mechanism. With auctions, 

FCC reduced the average time for granting a license to less than one 

year from the initial application date, compared to an average time of 

over 18 months with comparative hearings. 

• Auctions are administratively less costly than comparative hearings. 

Entities seeking a license can reduce expenditures for engineers and 

lawyers arising from preparing applications, litigating, and lobbying; and 

FCC can reduce expenditures associated with reviewing and analyzing 

applications.

• Auctions are a transparent process. FCC awards licenses to entities 

submitting the highest bid rather than relying on possibly vague criteria, 

as was done in comparative hearings.

26There are several instances where the public captures some value arising from commercial 

entities using government-controlled resources. For example, the federal government 

auctions offshore oil and gas drilling rights, collects royalties for mineral extraction on 

federal lands, and collects grazing fees.
Page 21 GAO-06-236 Telecommunications

• Auctions are effective in assigning licenses to entities that value them 

the most. Alternatively, with lotteries, FCC awarded licenses to 

randomly-selected entities.

• Auctions are an effective mechanism for the public to realize a portion 

of the value of a national resource used for commercial purposes. 

Entities submitting winning bids must remit the amount of their winning 

bid to the government, which represents a portion of the value that the 

bidder believes will arise from using the spectrum. As mentioned earlier, 

auctions have generated over $14.5 billion for the U.S. Treasury. 

Many industry stakeholders we contacted, and panelists on our expert 

panel, stated that auctions are more efficient than previous mechanisms 

used to assign spectrum licenses. For example, among our panelists, 11 of 

17 reported that auctions provide the most efficient method of assigning 

licenses; no panelist reported that comparative hearings or lotteries 

provided the most efficient method. Of the remaining panelists, several 

suggested that the most efficient mechanism depended on the service that 

would be permitted with the spectrum.27

Secondary Markets Provide 

an Additional Mechanism 

for Companies to Acquire 

Licenses and Gain Access to 

Spectrum

While FCC’s initial assignment mechanisms provide one means for 

companies to acquire licenses, companies can also acquire licenses or 

access to spectrum through secondary market transactions. Through 

secondary markets, companies can engage in transactions whereby a 

license or use of spectrum is transferred from one company to another. 

These transactions can incorporate the sale or trading of licenses. In some 

instances, companies acquire licenses through the purchase of an entire 

company, such as Cingular’s purchase of AT&T Wireless. Ultimately, FCC 

must approve transactions that result in the transfer of licenses from one 

company to another. 

In recent years, FCC has undertaken actions to facilitate secondary-market 

transactions. FCC authorized spectrum leasing for most wireless radio 

licenses with exclusive rights and created two categories of spectrum 

leases: Spectrum Manager Leasing—where the licensee retains legal and 

working control of the spectrum—and de Facto Transfer Leasing—where 

the licensee retains legal control but the lessee assumes working control of 

27For example, some panelists do not support using auctions to assign spectrum licenses for 

public safety services. 
Page 22 GAO-06-236 Telecommunications

the spectrum. FCC also streamlined the procedures that pertain to 

spectrum leasing. For instance, the Spectrum Manager Leases do not 

require prior FCC approval and de Facto Transfer Leases can receive 

immediate approval if the arrangement does not raise potential public 

interest concerns.28 While FCC has taken steps to facilitate secondary 

market transactions, some hindrances remain. For example, some industry 

stakeholders told us that the lack of flexibility in the use of spectrum can 

hinder secondary market transactions.

Secondary markets can provide several benefits. First, secondary markets 

can promote more efficient use of spectrum. If existing licensees are not 

fully utilizing the spectrum, secondary markets provide a mechanism 

whereby these licensees can transfer use of the spectrum to other 

companies that would utilize the spectrum, thereby increasing the amount 

of available spectrum and reducing the perceived scarcity of spectrum.29

Second, secondary markets can facilitate the participation of small 

businesses and introduction of new technologies. For example, a company 

might have a greater incentive to deploy new technologies that require less 

spectrum if the company can profitably transfer the unused portion of the 

spectrum to another company through the secondary market. Also, several 

stakeholders we spoke to noted that secondary markets provide a 

mechanism whereby a small business can acquire spectrum for a 

geographic area that best meets the needs of the company. 

28The public interest concerns arise as a result of FCC policies pertaining to (1) eligibility 

and use of the license and spectrum, (2) foreign ownership limitations, (3) designated entity 

and entrepreneur benefits, and (4) competition. See Promoting Efficient Use of Spectrum 

Through Elimination of Barriers to the Development of Secondary Markets, WT Docket 

No. 00-230, Second Report and Order, Order on Reconsideration, and Second Further Notice 

of Proposed Rulemaking, 19 FCC Rcd. 17503 (2004). 

29FCC has also established rules that allow licenses in many wireless services to partition or 

disaggregate their licenses. Partitioning involves subdividing the geographic area a licensee 

serves and disaggregation involves subdividing the spectrum associated with the licenses.
Page 23 GAO-06-236 Telecommunications

Industry Stakeholders 

and Panelists 

Suggested Several 

Options to Improve 

Spectrum Management 

Industry stakeholders and panelists on our expert panel offered a number 

of options for improving spectrum management. The most frequently cited 

options include (1) extending FCC’s auction authority, (2) reexamining the 

distribution of spectrum—such as between commercial and government 

use—to enhance the efficient and effective use of this important resource, 

and (3) ensuring clearly defined rights and flexibility in commercially 

licensed spectrum bands. There was no consensus on these options for 

improvements among stakeholders we interviewed and panelists on our 

expert panel, except for extending FCC’s auction authority. 

Extend FCC’s Auction 

Authority

Panelists on our expert panel and industry stakeholders with whom we 

spoke overwhelmingly supported extending FCC’s auction authority. For 

example, 21 of 22 of panelists on our expert panel indicated that the 

Congress should extend FCC’s auction authority beyond the September 30, 

2007 expiration date. As mentioned earlier, panelists and stakeholders 

believe that auctions are more efficient than previous mechanisms used to 

assign spectrum licenses; moreover, auctions are viewed as being faster, 

less costly, and more transparent than the previous mechanisms. 

Additionally, extending FCC’s auction authority could generate significant 

revenues for the government.30 However, panelists and stakeholders also 

noted that the government should use spectrum auctions to promote the 

efficient use of spectrum, not necessarily to maximize revenues for the 

government.

While panelists on our expert panel overwhelmingly supported extending 

FCC’s auction authority, a majority also suggested modifications to 

enhance the use of auctions.31 However, there was little consensus on the 

suggested modifications. The suggested modifications fall into the 

following three categories:

• Better define license rights. Some industry stakeholders and 

panelists indicated that FCC should better define the rights 

accompanying spectrum licenses, as these rights can significantly affect 

30For example, the Congressional Budget Office recently estimated that an auction of 60 

MHz of spectrum currently used by broadcasters would generate auction revenues of $10 

billion. See Congressional Budget Office, Cost Estimate: Digital Transition and Public 

Safety Act of 2005 (Washington, D.C.: October 24, 2005).

31Fifteen of twenty-two panelists suggested modifications to enhance the use of auctions.
Page 24 GAO-06-236 Telecommunications

the value of a license being auctioned. For example, some industry 

stakeholders express concern with FCC assigning overlay and underlay 

rights to frequency bands when a company holds a license for the same 

frequency bands.32

• Enhance secondary markets. Industry stakeholders we contacted and 

panelists on our expert panel generally believe that modifying the rules 

governing secondary markets could lead to more efficient use of 

spectrum. For example, some panelists on our expert panel said that 

FCC should increase its involvement in the secondary market. These 

panelists thought that increased oversight could help to both ensure 

transparency in the secondary market and also promote the use of the 

secondary market. Additionally, a few panelists said that adoption of a 

“two-sided” auction would support the efficient use of spectrum. With a 

two-sided auction, FCC would offer unassigned spectrum and existing 

licensees could make available the spectrum usage rights they currently 

hold.

• Reexamine existing small business incentives. The opinions of 

panelists on our expert panel and industry stakeholders with whom we 

spoke varied greatly regarding the need for and success of FCC’s efforts 

to promote economic opportunities for small businesses. For example, 

some panelists and industry stakeholders do not support incentive 

programs for small businesses. These panelists and industry 

stakeholders cited several reasons for not supporting these incentives, 

including (1) the wireless industry is not a small business industry; (2) 

while the policy may have been well intended, the current program is 

flawed; or (3) such incentives create inefficiencies in the market. Other 

industry stakeholders suggested alternative programs to support small 

businesses. These suggestions included (1) having licenses cover 

smaller geographic areas, (2) using auctions set aside exclusively for 

small and rural businesses, and (3) providing better lease options for 

small and rural businesses. Finally, some industry stakeholders with 

whom we spoke have benefited from the small business incentive 

32Underlay rights allow unlicensed users to operate in the same spectrum bands as 

licensees, as long as the unlicensed users do not cause undue interference for licensees. For 

example, ultra-wideband technology operates at very low power levels over a very wide 

range of spectrum, and thus might avoid interfering with licensed spectrum users in the 

same spectrum bands. Overlay rights allow unlicensed users to operate in licensed 

spectrum bands during times or in geographic areas where licensees are not using the 

spectrum. 
Page 25 GAO-06-236 Telecommunications

programs, such as bidding credits,33 and believe that these incentives 

have been an effective means to promote small business participation in 

wireless markets.

Reexamine the Use and 

Distribution of Spectrum

Panelists on our expert panel suggested a reexamination of the use and 

distribution of spectrum to ensure the most efficient and effective use of 

this important resource. One panelist noted that the government should 

have a good understanding of how much of the spectrum is being used. To 

gain a better understanding, a few panelists suggested that the government 

systematically track usage, perhaps through a “spectrum census.” This 

information would allow the government to determine if some portions of 

spectrum were underutilized, and if so, to make appropriate allocation 

changes and adjustments. 

A number of panelists on our expert panel also suggested that the 

government evaluate the relative allocation of spectrum for government 

and commercial use as well as the allocation of spectrum for licensed and 

unlicensed purposes. While panelists thought the relative allocation 

between these categories should be examined, there was little consensus 

among the panelists on the appropriate allocation. For instance, as shown 

in figure 3, 13 panelists indicated that more spectrum should be dedicated 

to commercial use, while 7 thought the current distribution was 

appropriate. No panelists thought that more spectrum should be dedicated 

to government use. Similarly, as shown in figure 4, nine panelists believed 

that more spectrum should be dedicated to licensed uses, six believed 

more should be dedicated to unlicensed uses, and five thought the current 

balance was appropriate. 

33A bidding credit is a percentage discount applied to the high bid amount if the bidder 

meets designated entity criteria established in the auction rules.
Page 26 GAO-06-236 Telecommunications

Figure 3: Panelists’ Views on the Allocation of Spectrum between Commercial and 

Government Use

Figure 4: Panelists’ Views on the Allocation of Spectrum between Licensed and 

Unlicensed Use

Source: GAO.

More to 

commercial

Current allocation 

is appropriate

13

7

Source: GAO.

More for 

licensed

More for 

unlicensed

Current allocation 

is appropriate

6

5

9
Page 27 GAO-06-236 Telecommunications

Ensure Clearly Defined 

Rights and Flexibility

Similar to a suggested modification of FCC’s use of auctions, some 

panelists on our expert panel suggested better defining users’ rights and 

increasing flexibility in the allocation of spectrum. Better defining users’ 

rights would clarify the understanding of the rights awarded with any type 

of license, whether the licensees acquired the license through an auction or 

other means. In addition, some panelists stated that greater flexibility in the 

type of technology used—and service offered—within frequency bands 

would help promote the efficient use of spectrum. In particular, greater 

flexibility would allow the licensee to determine the efficient and highly 

valued use, rather than relying on FCC-based allocation and service rules. 

However, some panelists on our expert panel and industry stakeholders 

with whom we spoke noted that greater flexibility can lead to interference, 

as different licensees provide potentially incompatible services in close 

proximity.34 Thus, panelists on our expert panel stressed the importance of 

balancing flexibility with interference protection.

Conclusions As commercial enterprises and government agencies increasingly utilize 

spectrum to provide consumer services and fulfill important missions, the 

management of spectrum to ensure its efficient use takes on greater 

importance. Many industry stakeholders and panelists on our expert panel 

told us that the current command-and-control process for allocating 

spectrum is less effective than other approaches. As a result, they stated 

that spectrum is not being fully utilized at all times and perhaps not being 

used for its highest-value purposes. Yet, few stakeholders or experts agree 

on how to improve the process. To achieve greater consensus for reform of 

the spectrum management process, we previously suggested that the 

Congress consider establishing an independent commission that would 

conduct a comprehensive examination of spectrum management.35

One aspect of spectrum management that appears very effective is the use 

of auctions for assigning licenses for commercial entities. As implemented 

by FCC, spectrum auctions resolve problems associated with previous 

assignment mechanisms, while giving rise to little or no problems. Most 

stakeholders and experts with whom we spoke support extending FCC’s 

34With the current allocation process, FCC attempts to keep incompatible service separated 

to avoid interference. With licensees exerting greater control, this protection could be 

reduced. 

35GAO-03-277. 
Page 28 GAO-06-236 Telecommunications

auction authority beyond the current expiration date of September 30, 

2007. 

Matter for 

Congressional 

Consideration

Given the success of FCC’s use of auctions and the overwhelming support 

among industry stakeholders and experts for extending FCC’s auction 

authority, the Congress should consider extending FCC’s auction authority 

beyond the current expiration date of September 30, 2007. 

Agency Comments We provided a draft of this report to FCC, NTIA, and the Office of 

Management and Budget for their review and comment. FCC provided 

technical comments that we incorporated where appropriate. NTIA had no 

comments on the draft. OMB concurred with our finding that auctions have 

mitigated problems associated with comparative hearings and lotteries and 

noted that the Administration supports the permanent extension of FCC’s 

auction authority. OMB also noted that the Administration has proposed to 

give FCC authority to use economic mechanisms to promote efficient 

spectrum use. 

We are sending copies of this report to the appropriate congressional 

committees. We are also sending this report to the Secretary of Commerce, 

Chairman of the Federal Communications Commission, and the Director of 

the Office of Management and Budget. We will also make copies available 

to others upon request. In addition, the report will be available at no charge 

on the GAO Web site at http://www.gao.gov. 

Should you have any questions about this report, please contact me at

202-512-2834 or heckerj@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. Individuals making key contributions to this report include
Page 29 GAO-06-236 Telecommunications

Amy Abramowitz, Stephen Brown, Emilie Cassou, Michael Clements, Nikki 

Clowers, Kate Magdalena Gonzalez, Eric Hudson, Terri Russell, Mindi 

Weisenbloom, and Alwynne Wilbur.

JayEtta Z. Hecker,

Director, Physical Infrastructure Issues
Page 30 GAO-06-236 Telecommunications

Appendix I

Scope and Methodology AAppenednxidexiIs

The Commercial Spectrum Enhancement Act required us to review the 

Federal Communications Commission’s (FCC) commercial spectrum 

licensing process. The objectives of our study included examining the (1) 

characteristics of the current spectrum allocation process for commercial 

uses; (2) impact of the assignment process—specifically the adoption of 

auctions to assign spectrum licenses—on end-user prices, infrastructure 

deployment, competition, and entry and participation of small businesses; 

and (3) options for improving spectrum management. 

To address all three objectives, we conducted a comprehensive, structured 

literature review of economic, legal, and public policy material relevant to 

spectrum issues. Our literature review included domestic studies on 

spectrum management that were published in the last 25 years. To identify 

articles for our literature review, we searched a number of databases, 

including LexisNexis, Hein Online, Westlaw, and ProQuest, using key terms 

such as “spectrum,” “assignment,” and “license.” We eliminated articles 

and studies from our literature review that did not directly relate to our 

objectives or did not provide original analysis. We also considered the 

methodological soundness of the articles and studies included in our 

literature review; we determined that the findings of these studies were 

sufficiently reliable for our purposes. 

We also extracted data from FCC’s license databases (Universal Licensing 

System, Consolidated Database System, and International Bureau Filing 

System) to determine the distribution of active licenses among different 

segments of the wireless industry and to identify the largest holders of 

licenses. To assess the reliability of the information from these databases, 

we interviewed FCC officials responsible for the databases about their data 

collection and verification policies, and procedures for license information. 

We also electronically tested the databases. We concluded that information 

from FCC’s license databases was sufficiently reliable for the purposes of 

this report. In addition, we interviewed FCC, National Telecommunications 

and Information Administration, and Office of Management and Budget 

officials and conducted semi-structured interviews with representatives 

from academia and the wireless industry to obtain a broad range of 

perspectives on spectrum allocation and assignment issues. We selected 

representatives from academia and the wireless industry based on their 

organization’s vested interest in spectrum policy, or their expertise in 

spectrum policy as represented by presentations or publications. (Table 1 

lists the companies, academic institutions, or other entities of the 

representatives we interviewed.) 
Appendix I

Scope and Methodology

Page 31 GAO-06-236 Telecommunications

Table 1: List of non-government interviewees

Source: GAO.

We also contracted with the National Academies to convene a balanced, 

diverse panel of experts to discuss spectrum allocation and assignment 

Alaska Native Broadband 1 License, LLC

Arraycomm

Bear Stearns

Brattle Group

Cingular

Consumers Energy Company

CSIS

CTIA

Dobson

Enterprise Wireless Allocation

Hogan and Hartson LLP

Information Technology Industry Council

Intel

Lockheed Martin

Lucent Technologies

Manhattan Institute

Metro PCS

Mobile Relay Associates

Motorola

National Association of Broadcasters

New America Foundation

New Skies Satellites

Nextel

Prudential Financial

Stanford University

Sprint PCS

T-Mobile

United Telecom Council

University of California, Berkley

University of Maryland

University of Pennsylvania

Verizon Wireless

Yale Law School
Appendix I

Scope and Methodology

Page 32 GAO-06-236 Telecommunications

issues and options to improve spectrum management in the future. We 

worked closely with the National Academies to identify and select 23 

panelists who could adequately respond to our general and specific 

questions about spectrum allocation, assignment processes, and options 

for improvement. In keeping with National Academies policy, the panelists 

were invited to provide their individual views, and the panel was not 

designed to reach a consensus on any of the issues that we asked them to 

discuss. The panelists convened at the National Academies in Washington, 

D.C., on August 9 and 10, 2005. Twelve panelists participated on the panel 

on August 9, 2005; eleven panelists participated on the panel on August 10, 

2005. (See table 2 for the list of panelists on each day.) The agendas and 

questions were identical for both days. To start each day, the panel 

moderators provided an overview of the issues to be discussed; during the 

remainder of the day, the panelists addressed the questions we had 

provided for their consideration. At the end of the each session, we asked 

the panelists to individually answer a short series of questions about the 

topics discussed in order to more systematically capture individual 

panelists’ views on key dimensions. We did not verify the panelists’ 

statements, although we did ask the panelists, in some instances, to clarify 

certain details. The views expressed by the panelists do not necessarily 

represent the views of GAO or the National Academies. 

Table 2: Panelists on GAO/National Academies expert panel

Name Affiliation

August 9, 2005

Dale Hatfield (moderator) Independent consultant and Adjunct Professor, University 

of Colorado, Boulder

Peter Cramton Professor, University of Maryland, College Park

David Donovan President, Association for Maximum Service Television, 

Inc.

Gerald Faulhaber Professor, The Wharton School, University of 

Pennsylvania

Bruce Franca Deputy Chief, Office of Engineering and Technology, 

Federal Communications Commission

Ellen Goodman Associate Professor, Rutgers School of Law, Camden

Mark McHenry President, Shared Spectrum

William Moroney President and CEO, United Telecom Council

Charla Rath Executive Director, Spectrum and Public Policy, Verizon 

Wireless
Appendix I

Scope and Methodology

Page 33 GAO-06-236 Telecommunications

Source: GAO.

After the expert panel was conducted, we analyzed a transcript of the 

panel’s discussion and survey responses in order to identify principal 

themes and panelists’ views. The results of the expert panel should be 

interpreted in the context of two key limitations and qualifications. First, 

although we were able to secure the participation of a balanced, highly 

qualified group of experts, there are other experts in this field who could 

not be included because of the need to limit the size of the panel. Although 

many points of view were represented, the panel was not representative of 

all potential views. Second, even though we conducted preliminary 

research, in cooperation with The National Academies, and heard from 

national experts in their fields, two panels cannot represent the current 

practice in this vast arena. More thought, discussion, and research must be 

done to develop greater agreement on what is really known, what needs to 

be done, and how to do it. These two key limitations and qualifications 

provide contextual boundaries. Nevertheless, the panel provided a rich 

David Reed Fellow, HP Labs and Adjunct Professor, Massachusetts 

Institute of Technology

Steve Sharkey Director, Spectrum and Standards Strategy, Motorola, Inc.

Badri Younes Director, Spectrum Management, Department of Defense

August 10, 2005

Gregory Rosston (moderator) Deputy Director, Stanford Institute for Economic Policy 

Research, Stanford University

Paul Besozzi Attorney, Patton Boggs, LLP

Diane J. Cornell Vice President, Regulatory Policy, Cellular 

Telecommunications and Internet Association

Joe Gattuso Senior Policy Advisor, Office of the Assistant Secretary, 

National Telecommunications and Information 

Administration

Kalpak Gude Vice President, Government Regulatory Affairs and 

Associate General Counsel, PanAmSat

Thomas W. Hazlett Professor of Law and Economics, George Mason 

University

Dewayne Hendricks CEO, The Dandin Group

Kevin Kahn Intel Senior Fellow, Communications Technology Lab, Intel 

Corporation

David Sidall Attorney, Paul, Hastings, Janofsky & Walker, LLP

Jennifer Warren Senior Director, Trade & Regulatory Affairs, Lockheed 

Martin

Jimmy R. "Rusty" Williams Infrastructure Services Manager, Planning & Engineering, 

Southern Company Services

(Continued From Previous Page)

Name Affiliation
Appendix I

Scope and Methodology

Page 34 GAO-06-236 Telecommunications

dialogue on spectrum allocation and assignment issues, as well as options 

for improving spectrum management in the future; the panelists also 

provided insightful comments in responding to the questions posed to the 

panel.

(544100)
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